Loan against Endowment plans
Updated On Jan 12, 2023
Table of Contents
An endowment plan is one of the life insurance plans that are in the form of an agreement that is designed to pay out a lump sum when the policy matures. This is inclusive of survival benefits, and the payout is given to the policyholder. Thereafter, the endowment policy gives a few benefits, mentioned in the policy, a death benefit payout on an unfortunate mishap of the policyholder. Endowment plans are for individuals who require risk-free financial products. These are also famous for providing individuals with many benefits.
Taking a Loan against an Endowment Policy
There are times when you are in an urgent need of cash. It might be a medical emergency, for instance. If such a situation comes up, you can easily turn up to your life insurance for assistance. It is possible to take a loan against a policy. However, there are certain policies and plans that allow you to take loans against the value of the insurance policy and some that do not. So, the question arises: can you take a loan against an endowment insurance policy? Yes, you can do this. But there are some terms and conditions to do so.
What is the Eligibility Criterion for Taking a Loan against an Endowment Policy?
You can apply for loan against policy, once your plan acquires the “surrendered value”. It is the amount that you would get back, that is, the cash amount of all premiums paid so far should you opt to surrender the policy or cease to hold it any longer, before its maturity. In those typical traditional policies, the policy reaches to a minimum assured surrender value once two or three annual premiums are done. The surrender value will increase with every passing year. However, this completely depends on the insurer you opt for, and the kind of endowment plan you hold. Knowing about the surrender value of your endowment policy is very important if you wish to take a loan, as loan eligibility is dependent on this factor. In brief, here are the eligibility criteria to get a loan against an endowment policy which is subject to the policy terms and conditions:
- Insurer's grant loans against the surrender value of an endowment policy
- Your policy should have reached a stage in which the surrender value is applicable
- Generally, you are eligible to get a loan of up to 70% to 90% of the surrender value
- You are eligible for a loan that is less than the surrender value (cash value of premiums paid)
Your insurance company has the right to assign and secure your endowment plan in order to secure loan repayment. All repayments on the loan have to be made by you before the plan matures. In case you fail to repay your loan against your endowment plan, your insurer can enforce foreclosure on the policy (terminate it). As you know, an endowment plan is a life insurance plan as well as an investment plan. Hence, if the unfortunate demise of the policyholder occurs and claims are made (for the death benefit), the insurer has the authority to deduct any balance amount arising from the loan with interest, and then pay the death benefit from the remaining amount.
Conclusion
An endowment insurance plan is a good way to protect your family’s future in your absence, as well as to secure your future. As long as you pay your premiums on time, you are entitled to get a loan against your plan, and this is an added highlight of an endowment plan. Endowment plans work for your long-term saving goals, so you should opt for such plans early. You can also look at other insurance plans that cover you for certain emergencies like illnesses, in a health insurance plan with a critical illness cover. For other kinds of life insurance plans, you may compare plans and find schemes that suit your individual needs and the requirements of your own family.
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